The Government IR35 review is 'recklessly inadequate', according to freelancer group, IPSE.

The review was the result of pre-election promises and gave a small glimmer of hope that the Government would rethink its controversial proposals to implement new IR35 rules in the private sector.

But that glimmer was extinguished with the publication of the review where the Government indicated its intentions to push ahead with the rules, which are 'essentially unchanged'.

However, some groups did take refuge in the Government's pledge to take a softer approach in the first year and to review the situation after six months.

IPSE warned this would be 'catastrophic' for the contracting sector.

The publication of the review coincides with recent research that shows only 15 per cent of contractors have so far been assessed as 'outside IR35' compared to the 66 per cent expected by HMRC. It also finds that 76 per cent believe a 'soft landing' for the policy would not affect their client’s approach to the rules.

Recklessly inadequate
Andy Chamberlain from IPSE said: “From the start, this review has been recklessly inadequate. Not only was it not independently chaired; it was also rushed out of the door in less than two months.

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“The tweaks proposed by the review go nowhere near far enough. If anything, this tinkering shows the Government knows the changes to IR35 will be immensely disruptive to business and contractors, but plans to forge ahead regardless.

“These off-payroll rules will be catastrophic for the contracting sector and will do serious damage to client businesses and the wider economy.

“Many businesses are already scrapping their contractor workforce because of these changes and, as we told the House of Lords inquiry, our research shows at least a third of freelancers plan to stop contracting in the UK because of them. We continue to urge the Government to rethink this disastrous policy before it is too late.”

Disappointing but not surprising
IR35 specialists saw the review as 'disappointing, albeit unsurprising' and felt that the Government has ignored the opportunity to make a difference.

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Qdos CEO, Seb Maley, said: “The Government has clearly ignored calls for a genuine review into IR35 reform, with the findings suggesting they were simply paying lip service to appease critics. Issues around the CEST tool, HMRC’s level of support and ways contractors can contest unfair IR35 decisions still stand. With IR35 reform only a month away, the response from Government is very disappointing, albeit unsurprising.

“While applying a ‘light touch’ to reform for the first 12 months has been welcomed, this is a red herring. It only applies to ‘penalties’, not necessarily tax liability owed as a result of inaccurate IR35 determinations. Therefore, private sector companies should not pay too much attention to this.

“Taking the IR35 review into account, my advice to private sector firms is to continue preparing without relying on HMRC for support. Prioritise accurate IR35 decisions, do not rely solely on CEST and above all else, avoid risk-averse and panicked assessments.”

Softer approach
However, the 'softer' approach was welcomed by the Association of Tax Technicians, but the group called for ongoing support from HMRC.

Jeremy Coker of the ATT, said: “We welcome tthe announcements of a softer approach from HMRC but this cannot mark the end of HMRC’s support to affected business people.

“We must have ongoing support from HMRC to help businesses get their employment tax status decisions correct, and support affected contractors in understanding their position and their rights.

“HMRC should continue to engage with professional bodies and other stakeholders after the new rules in the private sector begin in April, to ensure problems are identified early on and addressed promptly.”

The report says HMRC will ‘commission external research into the impacts of the reform six months after implementation, including on how status assessments are being made’.

Jeremy Coker said: “The planned research needs to be wide ranging and involve not just clients (the businesses which requires workers’ services) but also agencies and workers.

“The previous research commissioned in 2017 focused on the impact on public sector bodies in their capacity as clients rather than on the impact on supply-chain agents, personal service companies or workers who were also affected by the change.

“We call for more research beyond that at the six-month stage which was announced today. That early research will be an important step in identifying issues as promptly as possible but the full impact of the new rules is unlikely to become clear until after the affected workers have submitted their 2020/21 tax returns. A deeper and wider review in the first half of 2022 would give a better picture as to whether the new rules have achieved their goals.”